Lombard Bros., Inc. v. General Asset Management Co.

• Citation: 460 A.2d 481,190 Conn. 245
• Court: Supreme Court of Connecticut
• Decision Date: 31 May 1983
• Parties: LOMBARD BROTHERS, INC. v. GENERAL ASSET MANAGEMENT COMPANY et al.

Page 481

460 A.2d 481

190 Conn. 245

LOMBARD BROTHERS, INC. v. GENERAL ASSET MANAGEMENT COMPANY et al.

Supreme Court of Connecticut.

Argued March 3, 1983.

Decided May 31, 1983.

Mark F. Hughes, Jr., Newark, N.J., of the N.J. bar, with whom was John C. Heffernan, Hartford, for appellant (plaintiff).

Richard Cashman, New York City, of the New York bar, with whom was Anthony M. Fitzgerald, Waterbury, for appellee (defendant Second Dist. Securities Co., Inc.).

Before PETERS, HEALEY, SHEA, GRILLO and HENNESSY, JJ.

PETERS, Associate Justice.

This is an appeal from a judgment of dismissal for lack of personal jurisdiction over a nonresident corporation. The plaintiff, Lombard Brothers, Incorporated (Lombard), brought an action in twelve counts seeking monetary and other relief for losses sustained in various securities transactions. Although its complaint originally sought relief only from its investment advisor, the defendant General Asset Management Company, Inc. (GAM), and GAM's associates, the complaint was subsequently amended to cite in various securities dealers who executed the disputed financial transactions. One of these dealers was the defendant Second District Securities Company, Inc. (Second District). After the plaintiff had been afforded an opportunity to explore jurisdictional facts through the use of depositions, the defendant Second District successfully moved for dismissal of the cause of action against it. The plaintiff appeals. We find no error.

The trial court's memorandum of decision reveals the following undisputed facts. In September, 1976, the plaintiff Lombard entered into an agreement with the defendant GAM whereby GAM was to act as Lombard's investment advisor, with broad authority to make and alter investments on Lombard's behalf. Lombard is a Connecticut corporation with offices in Waterbury; GAM is a Delaware corporation with offices in Avon and in New York City.

GAM decided to have Lombard invest in government securities. To this end, GAM had Lombard open an account with the Chemical Bank in New York City. After an initial deposit of $500,000, Lombard made various other deposits to a total of $3,471,894.12 in its Chemical Bank account. GAM, which had authority to use these funds to carry out its investment plan for Lombard, drew on these funds in doing business with government securities dealers in New York, including the defendant Second District, a New York corporation with a New York City office. The defendant Second District never had any direct contact with Lombard. The trades between GAM and Second District, solicited exclusively by GAM, took the form of oral contracts, executed in New York by electronic transfers of federal funds through the Federal Reserve Bank of New York and by banking entries concerning the disposition of the securities. After the trades had been accomplished, confirmation slips accurately restating the essential elements of the trade were prepared by Second District and transmitted to GAM, the originals going to GAM's New York office and the duplicates to GAM's Avon office.

The defendant Second District is a dealer in government securities that deals only in New York and only on its own account as a principal. In Connecticut, it has no office, no bank account, no telephone listing, no property, no agent, and no salesman. It advertises in no local Connecticut papers. During the period in question, it placed only two advertisements in the New York Times and the Wall Street Journal, newspapers which concededly would have entered Connecticut; these advertisements announced additions of personnel. ¹ It did have some other customers in Connecticut, however. Of a total of three hundred customers, twelve were from Connecticut; of a total of $127,000,000,000 in total trades, $771,000,000 (or .6 percent) involved Connecticut customers. There was no evidence that trading with the defendant's other Connecticut customers was carried on in any way differently from the defendant's trading with this plaintiff.

It is the gravamen of the plaintiff's complaint that speculation in government securities was an inappropriate investment for the plaintiff and that the confirmation slips, mailed to Avon, furnished the basis for the preparation of misleading monthly reports from GAM to the plaintiff. To establish jurisdiction over the defendant Second District, the plaintiff relies on the volume of transactions memorialized by these confirmation slips, 145 trades totaling over $188,000,000, and the defendant's other contact points with Connecticut, principally its relationship to other Connecticut customers.

The trial court found that the defendant Second District was entitled to a dismissal on two grounds. It found an absence of those minimum contacts needed to establish that it would be fair and reasonable, in accordance with International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), to require the defendant to come into the state and defend the action. It further found that the defendant's contacts with the state of Connecticut did not comply with the foreseeability requirement of World-Wide Volkswagen Corporation v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980), that the defendant should reasonably have anticipated that it would be haled into court in Connecticut. These are constitutional considerations, which address the individual liberty interest protected by the due process clause. Insurance Corporation of Ireland, Ltd. v. Compagnie des Bauxites de Guinea, 456 U.S. 694, 102 S.Ct. 2099, 2104 n. 10, 72 L.Ed.2d 492 (1982).

Our analysis of the competing claims of the parties cannot, however, begin with the due process clause. Our first inquiry must be whether our long-arm statute authorizes the exercise of jurisdiction under the particular facts of this case. Only if we find the statute to be applicable do we reach the question whether it would offend due process to assert jurisdiction. See McFaddin v. National Executive Search, Inc., 354 F.Supp. 1166, 1168 (D.Conn.1973); Zartolas v. Nisenfeld, 184 Conn. ---, ---, --- (42 CLJ 52, pp. 1, 2-4) 440 A.2d 179 (1981); 2 Moore, Federal Practice (2d Ed. 1982) § 4.41-1, pp. 4-421--4-422. We note, additionally, that, in the establishment of facts pertaining to personal jurisdiction, it is the plaintiff who bears the burden of proof. Standard Tallow Corporation v. Jowdy, 190 Conn. 48, 459 A.2d 503 (1983).

I

The plaintiff's first statutory claim relies upon General Statutes § 33-411(b) as a basis for jurisdiction over Second District. That subsection states that "[e]very foreign corporation which transacts business in this state in violation of section 33-395 or 33-396 ² shall be subject to suit in this state upon any cause of action arising out of such business." The subsection thus confers local jurisdiction over a foreign corporation on two conditions: the transaction of business in this state, and a cause of action arising out of the transaction of such business. The plaintiff claims that the volume of Second District's overall dealings with Connecticut residents, in the amount of $771,000,000 over a two and one-half year period, satisfies both conditions.

We need not decide in this case whether a foreign corporation's large volume of dealings with a large number of local residents for large dollar amounts may not, at some point, suffice to establish "transaction of business" as a basis for personal jurisdiction over that corporation. Even if the plaintiff could prevail on this issue, it has made no showing whatsoever of any relationship between its causes of action and the business otherwise allegedly transacted by the defendant in this state.

The decisions addressing this aspect of § 33-411(b) have consistently held that the statutory language mandating "any cause of action arising out of [the transaction of] such business" requires some showing that the present litigation bears some connection with the business conducted by the foreign corporation in this state. Apolinario v. Avco Corporation, 561 F.Supp. 608 (U.S.D.Ct., D.Conn.Civ. No. H-81-133) (1982); Shaw v. American Cyanamid Co., 534 F.Supp. 527, 530 (D.Conn.1982); Bross Utilities Service Corporation v. Aboubshait, 489 F.Supp. 1366, 1371 (D.Conn.1980), aff'd without opinion, 646 F.2d 559 (2d Cir.1980); McFaddin v. National Executive Search, Inc., 354 F.Supp. 1166, 1168 (D.Conn.1973); Electric Regulator Corporation v. Sterling Extruder Corporation, 280 F.Supp. 550, 554 (D.Conn.1968).

While these precedents are all federal cases dealing with diversity jurisdiction; see Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir.1963); nothing in our own lower court cases holds to the contrary. In Connecticut Tool & Mfg. Co. v. Bowsteel Distributors, Inc., 24 Conn.Sup. 290, 298, 190 A.2d 236 (1963), jurisdiction was premised upon claims found to have arisen directly out of contracts solicited by the foreign corporation in this state. In both Couchon v. LeBron, Inc., 33 Conn.Sup. 628, 633-34, 365 A.2d 409 (1976) and Walter v. Hotel Brunswick, 3 Conn.Cir.Ct. 398, 400-405, 216 A.2d 212 (1965), the court's conclusion that the defendant did no business in this state obviated consideration of the statute's second prong. We therefore adopt the consistent holdings of the federal court cases and conclude that § 33-411(b) affords the plaintiff no jurisdictional base in the absence of allegations that the plaintiff's causes of action arose out of the defendant's transaction of business in Connecticut.

II

In the alternative, the plaintiff relies upon the provisions of § 33-411(c). Under that subsection, suit may be brought, "whether or not such foreign corporation is transacting or has transacted business in this state ... on any cause of action arising as follows: (1) Out of any contract made in this state or to be performed in this state; or (2) out of any business solicited in this state...